The Next Inflection Points

I was talking on Monday about the decent looking setup for a lower high on SPX, and so it proved to be. What next?

Well the rising wedge from the early May low has broken down and almost entirely retraced. There is some possible support here, but the trend down day that ES/SPX has delivered so far today may well see 2800 support broken and the next obvious move back into the 2750 area.

SPX 5min chart:

In terms of the options I was talking about in Monday's post, a bounce directly from the 2800 test, supported by possible RSI 14 buy signals brewing on the 5min and 15min charts, would be a decent (ish) fit with the triangle option I was talking about then, though that positive RSI divergence would mean nothing until the end of the day if today remains a trend down day.

SPX 15min chart:

If, as would be more likely I think, a bull flag channel or megaphone is forming here, then there is a very decent looking flag channel support target currently in the 2750 area. I'll be watching that for support if reached.

ES Jun 60min chart:

If SPX can break below that, then there is a possible H&S neckline in the 2727 area. If seen that could deliver a right shoulder bounce that would have an ideal high in the 2880 area, and that would be a match with a backtest of the 50 hour MA and 5dma, both currently in the 2890 area, broken yesterday afternoon and now the obvious resistance above.

If the sequence of scenario options here is sounding a bit confusing I have sketched the arrows on the chart below for the obvious paths from here excluding the triangle option, and merging the bull flag and H&S right shoulder options as they would likely look similar until SPX failed at a 2850-2900 right shoulder backtest.

SPX 60min chart:

On the daily chart SPX has broken back below the daily middle band, currently at 2854, and needs a close below that today and tomorrow to confirm the break. If this is a bull flag forming then that then would need to be reconverted back to support on the next leg up to open the minimum bull flag target at a retest of the 2954.86 high, and maybe higher.

SPX daily chart:

I'd like to stress here that I'm just following the technical breadcrumbs and am not buying the argument here that a new bull market is in progress. That's a very poor fit with both the current economic situation and what has happened historically in these sorts of times. I do think that this rally could go higher before reality bites however. Historically rallies like this usually happen in this kind of situation, and historically they all failed into lower lows. SPX could go higher before than happens though. 

Stan and I are doing a webinar at theartofchart.net an hour after the close tonight from our series on trading commodities, looking at attractive trading setups developing at the moment. If you'd like to attend then you can register for that on our May Free Webinars page. If you're interested in more market analysis you can sign up for a 30 day free trial at theartofchart.net here. No obligation beyond the free trial and I do a premarket video every morning, with Stan doing a video after the close, and access to our private twitter feed with a lot of useful day and swing trading updates.